COMMISSIONER OF CENTRAL EXCISE versus M/S. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD.

Citation: [2009] 13 S.C.R. 286 · Decided: 17-08-2009 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
D 
[2009] 13 (ADDL.) S.C.R. 286 
COMMISSIONER OF CENTRAL EXCISE 
v. 
M/S. GUJARAT NARMADA VALLEY FERTILIZERS CO. 
LTD. 
(Civil Appeal No. 1308 of 2008) 
AUGUST 17, 2009 
[S.H. KAPADIA AND AFTAB ALAM, JJ.] 
Cenvat Credit Rules, 2002: 
r.6(1) - LSHS used as "fuel" for producing steam and 
electricity, which in turn is used in or- in relation to the 
manufacture of exempted goods - Entitlement to Cenvat credit 
on such quantity of fuel - Held: Not entitled. 
r.6(1) - Electricity wheeled out/cleared to the grid and to 
the township - Entitlement to Cenvat credit - Held: Assessee 
is entitled to credit on the eligible inputs utilized in the 
generation of electricity to the extent the produced electricity 
E is used within its factory - Cenvat credit is not available to the 
extent of the electricity cleared to the grid or township or in 
favour of joint venture, vendors etc. which is sold at a price. 
The questions which arose for consideration in 
appeals filed by department were whether the assessee 
F was required to reverse the CENVAT credit in terms of 
Rule 6(1) of Cenvat Credit Rules, 2002 on the quantity of 
LSHS which was used as "fuel" for producing steam and 
electricity which in turn was used in or in relation to the 
manufacture of exempted goods, namely, fertilizers; and 
G whether department was right in reversing proportionate 
CENVAT credit to the extent of electricity wheeled out/ 
cleared to the grid and to the township. 
H 
286 
i 
COMMNR. OF CENTRAL EXCISE v. GUJARAT 
287 
NARMADA VALLEY FERTILIZERS CO. LTD. 
Allowing the appeals, the Court 
A 
HELD: 1. Sub-rule (1) of Ru1le 6 of Cenvat Credit 
Rules, 2002 is plenary. It restates a principle, namely, that 
CENVAT credit for duty paid on inputs used in the 
manufacture of exempted final products is not allowable. 
8 
This principle is in-built in the very structure of the 
CENVAT scheme. Sub-rule (1 ), therefore, merely 
highlights that principle. Sub~rule (1) covers all inputs, 
including fuel, whereas sub-rule (2) refers to non-fuel-
inputs. Sub-rule (2) covers a situation where common c 
cenvatted inputs are used in or in relation to manufacture 
of dutiable final product and exempted final product but 
the fuel-input is excluded from that sub-rule. However, 
exclusion of fuel-input vis-a-vis non-fuel-input would still 
fall in sub-rule (1 ). As sub-rule (1) is plenary, hence, it o 
cannot be said that because sub-rule (2) is inapplicable 
to fuel-input(s), CENVAT credit is automatically available 
to such inputs even if they are used in the manufacture 
of exempted goods. The cumulative reading of sub-rules 
(1) and (2) makes it abundantly clear that the 
E 
circumstances specified in sub-rule (2), which requires 
separate accounting of inputs, are not applicable to the 
fuel-input(s). However, the said sub-rule (2) nowhere says 
that the legal effect of sub-rule (1) will stand terminated 
in respect of fuel-inputs which do not fall in sub-rule (2). 
F 
In other words, the legal effect of sub-rule (1) has to be 
applied to all inputs including fuel-inputs, only exception 
being non-fuel-inputs, for which one has to maintain 
separate accounts or in its absence pay 8% /10% of the 
total price of the exempted final products. Therefore, sub-
G 
rule (1) shall apply in respect of goods used as "fuel" and 
on such application, the credit will not be permissible on 
such quantity of fuel which is used in the manufa~ture 
of exempted goods. [Para 10) [298-D-H; 299-A-B] 
H 
288 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R. 
A 
Commissioner of Central Excise and Customs vs. Mis. 
Gujarat Narmada Valley (2006) 193 ELT 136, referred to. 
2. Assessee is entitled to credit on the eligible inputs 
utilized in the generation of electricity to the extent to 
8 which they are using the produced electricity within their 
factory (for captive production). They are not entitled to 
CENVAT credit to the extent of the electricity cleared 'at 
the contractual rate in favour of joint venture, vendors etc. 
which is sold at a price. [Para 12] (299-F-G] 
c 
Mis. Maruti Suzuki Ltd. v. Commissioner of Central 
Excise, Delhi-Ill 2009(11) SCALE 446, relied on. 
3. It may be noted that litigation on interpretation of 
CENVAT Credit Rules has arisen on account of various 
· D conflicting decisions given by the various Benches of 
CESTAT, the reason being that the Rules were not 
properly drafted. In the circumstances, in this batch of 
cases no penalty is leviable, how

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